Glaxo Lifts Sales And Dividend

Published in Company Comment on 28 April 2010

Pharmaceutical giant GSK makes a solid start to the year, with double-digit growth.

GlaxoSmithKline (LSE: GSK), the world's fourth-biggest pharmaceutical firm by sales, reported strong first-quarter results at noon on Wednesday.

Sailing through the slowdown

GSK reported rising sales and earnings, as follows (using constant exchange rates):

  • Turnover: £7,357m (+13%)

  • Operating profit (after restructuring costs): £2,094 million (+22%)

  • Earnings per share (after restructuring costs of £301m): 26.4p (+18%)

However, GSK's first-quarter sales were boosted by seasonal sales of pandemic products: H1N1 bird-flu vaccine and anti-viral Relenza. Stripping out these £782m of sales, revenues grew by a more sedate 4%.

GSK's first-quarter dividend is up 7% to 15p from 14p.

An evolving business

Under youthful CEO Andrew Whitty (who bagged a 76% pay rise to £8.1m in 2009 while freezing pay for most workers), Glaxo seems to be moving steadily away from its time-honoured strategy of relying on "white pills and western markets".

In the latest three-month period, just over a quarter (27%) of its pharma sales came from this category. Sales in emerging markets grew 43% and in Asia Pacific/Japan by 45%. In addition, sales of new products rose by almost two-thirds (65%) to £412 million.

However, thanks to generic competition, US sales were down 1% to £1.9 billion, although this was an improvement on the 24% fall seen in the same period last year. GSK claims that it is ready to compete in the American market, even after President's Obama's healthcare reforms lead to higher discounts for drugs bought by government programmes such as Medicaid. This competitiveness will partly be achieved by global cost savings of £2.2 billion by 2012.

As well as its pharmaceutical sales -- including best-selling asthma drugs Advair and Seretide -- GSK has a big consumer-healthcare division. This sells well-known brands such as drinks Lucozade and Ribena, and toothpastes Aquafresh and Sensodyne. Consumer healthcare recorded sales of £1.2 billion, up 9% on last year, and well ahead of market growth of 1%.

Solid as a rock

When it comes to blue-chip companies here in the UK, you don't get much bigger than GSK. The drugs Goliath has a market cap of nearly £64 billion. What's more, you don't get much steadier and safer businesses than selling drugs. For example, GSK's annual dividend (paid quarterly) has risen handsomely this century, as you can see below:

GSK's dividend 2001-2009


As you can see, while lesser firms were collapsing in the worst financial meltdown since the Great Depression, GSK strongly increased its dividend. As an owner, what more could you want (apart from a much higher share price, that is)? Although GSK is the already the ninth-highest yielding share in the FTSE 100, its dividend is covered at least twice.

For the record, I've owned shares in GSK for more than twenty years. Trading on a price-earnings ratio of 10.9 and yielding 4.6%, Glaxo is a core holding for income seekers, cautious investors -- and even the proverbial widows and orphans!

More from Cliff D'Arcy:

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LastChip 28 Apr 2010 , 3:08pm

Me too!


p3t3r100 29 Apr 2010 , 4:28pm

I'm also a long term investor.
I have chosen to re-invest dividends which may have been a mistake.
Although I now have significantly increased my shareholding via DRIP,
the share price has been static at best in real terms.
I may need to wait quite some time to make a decent profit.
Should I abandon DRIP?

Fingered 16 May 2010 , 2:58am

Shame you didn't sell them in 1999 Cliff.

Fingered 16 May 2010 , 3:40am

You have owned them for over 20years! Gosh Cliff, you are tenacious. Well you could have saved yourself a whole ton of worrying in climbing that " wall of worry" . Stock now is same price as it was 13 years ago. On a biblical 70 year basis, I make that a stress lasting 18.6% of a lifetime.

Fingered 16 May 2010 , 3:47am

So with price now so low, you going to load up on more stock Cliff?

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